25 Oct 2013
Flash: Any USD damage more cyclical than structural - JPMorgan
FXstreet.com (Barcelona) - While the political wars in Washington raise concerns about a potential loss of appeal in the US dollar as a reserve currency, any damage to the dollar should be seen as more cyclical than structural, according to John Normand and Niall O'Connor, FX Strategists at JPMorgan.
Key Quotes
"These fears about reserve managers actively shifting out of dollars is exaggerated due to the still very low probability of breaching the debt ceiling in future and the lack of liquid alternatives."
"US political dysfunction isn’t an unfamiliar phenomenon (though incidents have become more frequent since Republicans took the House in 2010), and it now aligns the US with many parts of Europe and the old Japan."
"The damage to the dollar therefore looks more cyclical than structural in that is suppresses US rates for longer. But with the US economy unlikely to slow much or for long, US rates should move towards 2.7% by year-end, which in turn limits USD downside into the new year."
"We doubt the December 2013/January 2014 debates will be as tense as the October one, and the debt ceiling issue has been deferred effectively until July 2014 due to Treasury’s use of extraordinary measures."
Key Quotes
"These fears about reserve managers actively shifting out of dollars is exaggerated due to the still very low probability of breaching the debt ceiling in future and the lack of liquid alternatives."
"US political dysfunction isn’t an unfamiliar phenomenon (though incidents have become more frequent since Republicans took the House in 2010), and it now aligns the US with many parts of Europe and the old Japan."
"The damage to the dollar therefore looks more cyclical than structural in that is suppresses US rates for longer. But with the US economy unlikely to slow much or for long, US rates should move towards 2.7% by year-end, which in turn limits USD downside into the new year."
"We doubt the December 2013/January 2014 debates will be as tense as the October one, and the debt ceiling issue has been deferred effectively until July 2014 due to Treasury’s use of extraordinary measures."